Newspapers as Luxury Goods: Murdoch and Sulzberger Have More in Common Than It Appears

In August of 2007, when Rupert Murdoch’s News Corp. agreed to pay five billion dollars for the Wall Street Journal—thank you very much Father Christmas, said the Bancroft family, rushing off to the bank lest News’ long-suffering stockholders organize an insurrection—there was much talk of an old-fashioned newspaper war breaking out between the Journal and the Times. Conservative Murdoch battles liberal Sulzberger for control of Gotham: in the days when tablets were still something you took for a hangover or a heart condition, the story was irresistible. (My colleague Ken Auletta has a piece about Murdoch’s daughter Elisabeth in this week’s New Yorker.)

Five and a half years on, the daily battle for scoops and readers rages on, but a much larger conflict—the battle between old media and new media—has completely overshadowed it. Murdoch and Sulzberger, for all their mutual antipathy, are now basically on the same side. Two old-school press barons trying to maintain labor-intensive news factories in an increasingly hostile environment, they share common interests, and, more pointedly, a set of common enemies: online media companies, led by Google; skeptical Wall Street analysts; and fickle readers, especially younger ones, to whom buying a newspaper every day is a quaint notion.

On Monday, Murdoch provided more details of his plan to split News Corp. in two. The company’s print arm, which consists of newspapers in the United States, Britain, and Australia, plus the HarperCollins book company, will retain the News Corp. name. The rest of the company, which consists of Fox, Twentieth Century Fox, plus various other cable and satellite companies spread around the world, will be known as Fox Group. (The Daily, a tablet newspaper that Murdoch launched with great fanfare in February, 2011, won’t be in either division. It is shutting down on December 15th.) Despite Murdoch’s attempt at spin, saying to his employees in a memo obtained by TPM that he had “great news to report regarding the proposed separation of our company into two global leaders,” there could be no disguising that this latest move was forced upon him.

In the wake of the British phone-hacking scandal, which was centered around the News of the World, a now defunct tabloid that Murdoch has owned since the nineteen-sixties, Wall Street prevailed upon the eighty-one-year-old mogul to hive off the newspapers and book companies, which have long exhibited lower growth than the film and television divisions. Inside News, particularly in the Hollywood arm, where there has long been hostility towards the newspapers and their trouble-making employees, senior executives made the same argument, and Murdoch apparently gave in. Now, the print operations will have to stand on their own.

Meanwhile, over on Eighth Avenue, Sulzberger was busy writing to his employees with depressing news of his own: more job cuts, including thirty in the Times newsroom. In an internal memo obtained by the Huffington Post, Sulzberger said: “As we all know, these are financially challenging times…. While we will continue to invest where needed to ensure our role as a global leader in news and information, we must make some difficult decisions to lower our costs. Our business-side colleagues will continue their efforts to find staff reductions and other efficiencies, but it is now impossible not to look also within the ranks of our news operations…. You will be hearing more from your managers.”

With further jobs cuts to come at the Journal—as well as at the Times, most probably—it’s all pretty depressing. Well, perhaps not quite all. The age of newspapers as cheap, mass-market goods—the throbbing pulse of any city worth the name—is fast disappearing. But that doesn’t mean that there’s no future for upscale publications like the Times and the Journal—or the Financial Times, or any other publishing entity that can engage the attention of people with plenty of disposable income. Once they get through a wrenching transition, such titles could well enjoy a prosperous future, but it will be a somewhat smaller and, for some, less uplifting future: the newspaper (in print, tablet, or online form) as a luxury good.

The change is already well under way. Rather than behaving like traditional press barons, or crusaders for a particular set of political values, people like Murdoch and Sulzberger are increasingly aping the makers of other consumer goods, such as fashionable clothes and trendy gadgets: limiting free online access, pushing up their subscription prices, and generally trying to exploit the power of their brands to distinguish themselves from lesser competitors. At the Times and the Journal, most readers still get home delivery and/or, a digital subscription. For the Times, the annual cost of the paper edition (delivered to Brooklyn) and full online access is $629.20. For the Journal, which only comes out six days a week, a similar package is $501.80. Anybody who gets both papers delivered, as I did for years, will end up paying $1,131.00.

To some readers of this blog, that might not sound like a lot of money. To most Americans, it is a big chunk of change. In 2011, the median household income was $50,054. For families in the middle of the income distribution, spending a thousand bucks a year, or thereabouts, on a daily source of news simply isn’t an option. As figures from the Census Bureau make clear, the expenditures of these households mostly go toward essentials, such as food, housing, transport, and health care.

I haven’t seen the exact figures, but it’s probably safe to assume that most subscribers to the Times and the Journal earn well over fifty thousand dollars a year. As time goes on, their readership will probably get more and more elitist. In 1990, a weekday issue of the Times cost forty cents. By 9/11, the price had risen to seventy-five cents. In the past eleven years, the cover price has more than tripled, to $2.50. (The price of the Journal, now two dollars, has followed a similar trajectory.) Many longtime readers, myself included, bitch about the regular increases in subscription rates, but that doesn’t stop us from shelling out, and it doesn’t make much sense either. Decent newspapers, with their big reporting staffs and extensive foreign coverage, have always been costly to produce. For years, the advertisers picked up the tab, and the readers merely paid the costs of distribution. But with print advertising still falling at a rapid rate—at the Times Company, which includes the Boston Globe, it was more than ten per cent in the third quarter—the balance of revenues is inevitably shifting toward subscription fees.

One unresolved question is how far this process can go, and how far the papers will have to downsize before they can break even on reduced revenues. Quite a bit further, it seems. The Times Company, despite the Herculean efforts it has put in over the years to boost Web advertising, generated just $44.6 million from this source in the latest quarter. Despite its precipitous fall, print advertising still generated more than three times as much: $138 million. News Corp., a vast conglomerate, doesn’t reveal the revenue figures at the Journal, but in reporting its third-quarter results, said that operating income at its global publishing divisions fell from $110 million last year to $53 million, due to “lower advertising revenues across all divisions, led by declines at the Australian and U.S. publishing businesses.”

The good news, such as it is, is that online subscriptions are growing steadily. At the end of September, the Times and the Herald Tribune had 566,000 digital subscribers, an increase of eleven per cent on the previous quarter. The Journal alone has about 2.3 million subscribers, of which 1.5 million are print subscribers and 800,000 are digital subscribers. (The broader Wall Street Journal Digital Network, which includes Barrons and Marketwatch, has 1.3 million paid subscribers.) These are encouraging figures. Those who said that people won’t pay for news online were simply wrong. As with other consumer goods, there will always be a group of people who are willing to pay a premium for what they perceive as a better product. Not everybody shops at Old Navy and Target: Saks and Barneys make money, too.

However, the sad fact remains that digital readers aren’t worth as much as print readers to newspaper publishers. Partly, this is because online subscription rates are lower than print rates. Online access to the Times costs hundred and ninety-five dollars a year; the Journal charges about two hundred and fifty. But the bigger hit comes in terms of advertising. In an interview earlier this year, Alan Murray, who was recently resigned as the deputy managing editor of the Journal, said that if each print subscriber was worth a dollar, each digital subscriber was worth just twenty-five cents, and, in some cases, as little as a dime.

This exchange of dollars for dimes answers a question often posted by people outside the newspaper industry: Why don’t companies like the Times and News Corp. stop printing a paper edition to save on production costs? The savings on newsprint and printers’ salaries would be more than offset by a decline in advertising revenues. As long as there is a big gap between ad rates online and offline, it will make sense for the Times and the Journal to go on printing—in their major markets, anyway.

The great hope remains that online-ad rates will eventually pick up, and that publishers will be able to steadily increase their online-subscription rates. In the short term, however, the Internet will continue to cannibalize existing print subscribers and the pressure to cut costs will intensify. That raises the question of whether either the Times Company or News Corp. has the financial reserves necessary to see out not a circulation battle with each other but an ongoing war with the publishing economics of the twenty-first century. Until recently, most of the doubts concerned the Times Company, which back in 2009 was forced to borrow two hundred and fifty million dollars from Carlos Slim, the Mexican billionaire, to avoid a liquidity crisis. But now, with the splitting up of Murdoch’s empire, there are some questions about News Corp.’s durability, too.

During the past couple of years, aided by low market interest rates, the Times Company has been shoring up its somewhat battered balance sheet. In 2011, it repaid Slim’s loan. More recently, it has raised more than five hundred million dollars by selling its stake in the Boston Red Sox and two Internet companies it owned, About.com and Indeed.com. In a statement accompanying the third-quarter results, Sulzberger said that the proceeds from these sales would strengthen the company’s liquidity position and also “enhance our focus on our core business of generating and distributing high-quality journalism.” With no substantial debts coming due before 2015, the situation of the Times Company is much better than it was. Even now, though, it has almost eight hundred million dollars in debt, which is a big burden for an enterprise with about a billion dollars in revenues.

The old News Corp., of course, is a fabulously profitable company. In the third quarter of this year, it made $2.23 billion. But the new News Corp.—the print one—will be a very different, and much less profitable, animal. While the exact financials of Murdoch papers like the Journal and the New York Post (where I worked for a couple of years in the early nineteen-nineties) are jealously guarded, many observers believe that they run at a loss. In post at the Guardian, Michael Wolff, the Murdoch biographer, said that the Post and the Journal “may together lose as much as $200m a year.” That figure sounds very high to me. When I put it to Ashley Huston, a spokeswoman for Dow Jones, she wrote back, “I can’t speak for the NY Post, but the WSJ is profitable.”

Still, there is no doubt that the new News Corp. will have to make some tough decisions about how to allocate its capital. The days of free spending may be over. On the other hand, with Murdoch you never know for sure. In orchestrating the split, he has been careful to keep a number of Australian television assets, which generate a good deal of cash, inside the diminished News Corp. Most likely he will also endow it with a substantial cash pile to act as buffer against the uncertainties of the online future, and maybe even as a kitty for further acquisitions. In recent weeks, he has been linked with efforts to buy the Chicago Tribune and the Los Angeles Times.

Even allowing for the fact that Murdoch has forgotten more about the newspaper business than most people know, that might not be the wisest course, especially if it distracts him from the Journal, which, like the Times, needs sustained support. I read them both this morning, and, just for the record, they were both full of lively reporting, timely reviews, sharp commentary, arresting photography, and interesting graphics. Of course, they could be improved. My preference would be for more investigative pieces in the Journal, along the lines of Tuesday’s fine piece on Benghazi, and more actual news, rather than news features, in the Times. But that is by the by. The bigger picture is that, despite all the naysayers, quality newspapers do appear to have a future—albeit as luxury goods. After all the turmoil of the past decade, that’s kind of encouraging news.